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California faces a $25 billion budget deficit, could be worse if there is a recession

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California could face a $25 billion budget deficit in 2023–24, despite raking in a record-setting $98 billion budget surplus this year, according to an analysis that comes days after midterms election, in a state where the Democratic party enjoys a supermajority.

“The budget problem is mainly attributable to lower revenue estimates, which are lower than budget act projections from 2021–22 through 2023–24 by $41 billion. Revenue losses are offset by lower spending in certain areas,” said the nonpartisan Legislative Analyst’s Office (LAO) of California in its annual fiscal outlook (pdf). Even though the analysis does not include inflation or economic recession, the numbers are dismal.

“While our lower revenue estimates incorporate the risk of a recession, they do not reflect a recession scenario.” The report forecasts that deficits would decline from $17 billion to $8 billion over the subsequent three years.

The revenues and transfers for 2023–24 come around $208 billion, nearly the same as the last fiscal. The spending is approximately $226 billion, which represents a decrease of almost $3.6 billion. However, during 2022–23, there was a $19 billion fund balance from the prior term, which resulted in a total negative balance of $6.7 billion.

The previous year’s fund is used to calculate the cost of the fiscal…



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